Aramco warns global refineries have no buffer left against fuel price shocks

The world's largest oil companies are warning that global fuel inventories have fallen to dangerous levels, with refineries outside conflict zones operating at or above maximum capacity and virtually no buffer left to absorb further supply shocks.

Saudi Aramco, the world's biggest oil producer, said on Tuesday that refineries are "running at full tilt across the world" with few shock absorbers remaining in the system to protect against higher fuel prices. The warning follows similar statements from Exxon Mobil ↘ 0.69%, Shell ↘ 1.84%, Chevron ↘ 0.67%, and TotalEnergies ↗ 0.80% in recent days, as the Iran war enters its sixth month with no resolution in sight.bloomberg

A Refining Crisis, Not a Crude Crisis

The constraint in global energy markets has shifted decisively from crude oil to refined products. "The constraint pain point in the energy system is refining," Exxon's chief financial officer Neil Hansen told Bloomberg, calling it "something that perhaps the market isn't fully focused on."oilprice

The wars in the Middle East and Ukraine, China's caps on fuel exports, and Russia's ban on diesel exports have collectively removed roughly 5 million barrels per day — about 6% — of pre-war global refining output in the second quarter, according to a Reuters column by Ron Bousso. Global refinery runs averaged around 78 million barrels per day, the lowest level since the COVID-19 pandemic in 2020, according to the International Energy Agency.boereport+1

Refineries that can still operate are running flat out. U.S. refineries operated at 97% of capacity in the week to July 24, well above their long-term average of around 90%. Exxon's Gulf Coast refineries have been running at 95% utilization, Chevron's at 97%, and Shell's network actually exceeded 100% during the second quarter. Europe's diesel benchmark is trading above $150 a barrel, while U.S. retail gasoline remains above $4 a gallon.bloomberg+2

Record Profits, Political Backlash

The supply crunch has delivered extraordinary profits. Exxon posted downstream earnings of $5.5 billion in the second quarter, while Chevron's refining profits reached $4.9 billion — up from $737 million a year earlier. Together, the two companies earned roughly $26.5 billion in net income during the quarter.gulfnews

That windfall has drawn political fire. President Trump has demanded gasoline prices of $2.25 a gallon and ordered the Justice Department to investigate potential price gouging, even as Exxon CEO Darren Woods noted that available global refining capacity is historically tight.worldoil+1

Fragile Outlook

Analysts warn the situation could worsen as refinery maintenance season approaches in September. Wood Mackenzie's Alan Gelder expects refining margins and utilization rates to remain strong through the end of the decade, but the Reuters analysis cautioned that today's profits are generated by "war, damaged infrastructure and scarcity, not by a structural improvement in the industry's underlying fundamentals."boereport

BP ↘ 1.91% reports earnings on Tuesday, with its refining-indicator margin averaging $42 per barrel so far in the third quarter — more than triple the year-ago level.boereport